If personal income taxes and business taxes increase, then this will
A) increase aggregate demand and aggregate supply.
B) decrease aggregate demand and aggregate supply.
C) decrease aggregate demand and increase aggregate supply.
D) increase aggregate demand and decrease aggregate supply.

Question

Quizplus · Accepted Answer

An increase in personal income taxes reduces consumers' disposable income, leading to a decrease in consumption and thus a decrease in aggregate demand. Similarly, an increase in business taxes raises production costs, which can reduce business investment and production, leading to a decrease in aggregate supply.

If Personal Income Taxes and Business Taxes Increase, Then This